New Tax Calculation Method For Individual Annual Bonus
The new China Individual Income Tax law (IIT law) which took effect in January 2019 made significant changes for the tax calculation on the individual’s annual bonus, which take effect in January of next year.
Until 31 December 2021 the annual bonus, paid to employees both foreign and Chinese once a year, is taxed separately from the salary with a preferential tax calculation method that allows the amount of the bonus to be divided by 12 and a preferential tax rate applied.
Under the new law, starting from 1 January 2022 the preferential tax treatment will no longer be used and the year-end bonus will be included as part of the individual’s annual salary and taxed at the regular IIT calculation rate.
The upcoming implementation of this aspect of the IIT Law is likely to raise company personnel costs.